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CDRI Pricing and Settlement Algorithms

CDRI Pricing and Settlement Algorithms. September 21, 2009. Donald J. Sipe, PretiFlaherty for CDRI. THE ALGORITHMS ARE NOT TIED TO ANY PARTICULAR COMPENSATION LEVEL OR SCHEME. Clearing Price As Bid Fixed Price Threshold Plus Fixed Price Threshold-Clearing Price.

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CDRI Pricing and Settlement Algorithms

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  1. CDRI Pricing and Settlement Algorithms September 21, 2009 Donald J. Sipe, PretiFlaherty for CDRI

  2. THE ALGORITHMS ARE NOT TIED TO ANY PARTICULAR COMPENSATION LEVEL OR SCHEME • Clearing Price • As Bid • Fixed Price • Threshold Plus Fixed Price • Threshold-Clearing Price Donald J. Sipe, PretiFlaherty

  3. ANY SCHEME THAT PAYS FOR DEMAND RESPONSE IMPLICATES THE MISSING MONEY PROBLEM As DR becomes a larger part of the market, the missing money problem increases. The Settlement Algorithm solves it. Donald J. Sipe, PretiFlaherty

  4. ANY SCHEME THAT REQUIRES COORDINATION BETWEEN LSE’S AND DR PROVIDERS • Harms the Market • Doesn’t Solve the Missing Money Problem. • The Algorithms eliminate the need for such coordination. Donald J. Sipe, PretiFlaherty

  5. THE ALGORITHMS ROLL THE COST OF DR DIRECTLY INTO THE ENERGY COMPONENT OF WHOLESALE RATES • Those rates will be transparent to the market as current rates are. • There will be no later uplift to Day Ahead loads and no hidden costs. Donald J. Sipe, PretiFlaherty

  6. THE DAY AHEAD PRICING AND DISPATCH ALGORITHM Under the Day Ahead pricing algorithm, the incremental cost of DR resources is spread over Day Ahead load adjusted for the billing unit effects of DR implementation. The pricing algorithm works by comparing possible Day Ahead bid stacks to determine which dispatch results in the cheapest Day Ahead Price. The lowest Day Ahead Price on a per billing unit basis maximizes consumer surplus, consistent with the Savings Principle. The algorithm generates a price, which we shall call the “Day Ahead Price” (to distinguish it from the “clearing price”), which is paid by all load cleared Day Ahead. All resources (both generation and DR) are paid based on the clearing price without this incremental, billing unit adjustment. Donald J. Sipe, PretiFlaherty

  7. THE DAY AHEAD PRICE The price paid by load in that hour for each MW of load bid in Day Ahead is called the “Day Ahead Price” and is calculated as follows: DARR =DAP DAL-DADR Where DARR=Day Ahead Revenue Requirement. The Day Ahead Revenue Requirement for a dispatch interval is the total cost of paying all dispatched resources the clearing price. DAL=Day Ahead Load, the full amount of load bid in Day Ahead that clears. DADR=Day Ahead Demand Response, the Megawatt value of all Demand Response resources dispatched to serve the Day Ahead load. DAP=The Day Ahead Price. Donald J. Sipe, PretiFlaherty

  8. EXAMPLES: ASSUMPTIONS RESOURCE STACK Donald J. Sipe, PretiFlaherty

  9. LOW LOAD EXAMPLE 1: LOAD 200 MW DISPATCH 1 DISPATCH 2 Day Ahead Price= Day Ahead Price= DISPATCH 2 IS CHOSEN Donald J. Sipe, PretiFlaherty

  10. LOW LOAD EXAMPLE 2: LOAD 400 MW DISPATCH 1 DISPATCH 2 DISPATCH 3 DAP= $36,000 DAP= $40,000 DAP= $18,000 DISPATCH 3 IS CHOSEN Donald J. Sipe, PretiFlaherty

  11. HIGH LOAD EXAMPLES: ASSUMPTIONS RESOURCE STACK Resource Bid Donald J. Sipe, PretiFlaherty

  12. High Load Example Number 1: 1,300 MW Load Bid in Day Ahead DISPATCH 1 DISPATCH 2 Day Ahead Price= Day Ahead Price= DISPATCH 1 IS CHOSEN Donald J. Sipe, PretiFlaherty

  13. High Load Example Number 2: 1,400 MW Load Bid in Day Ahead DISPATCH 1 DISPATCH 2 DISPATCH 3 DAP= $126,000 DAP= $140,000 DAP= $168,000 DISPATCH 1 IS CHOSEN Donald J. Sipe, PretiFlaherty

  14. THE SETTLEMENT ALGORITHM • Charge all load cleared Day Ahead (DAL) the Day Ahead Price (DAP). • This results in an overcollection of money (i.e. more than needed to pay the DARR). • The overcollection = DADR x DAP. • We will call this amount the “Reconciliation Account” (RA). Donald J. Sipe, PretiFlaherty

  15. THE SETTLEMENT ALGORITHM (cont.) Remember: • The Day Ahead Price is absolutely lower than any other price per unit for all load cleared Day Ahead. • Therefore, even if we never returned this “overcollection” (the RA). All Day Ahead Load would still be receiving a lower price than otherwise. • However, we intend to return the RA to Day Ahead loads. • Because the RA is not needed in order to pay for all resources dispatched Day Ahead, we will return the RA to Day Ahead loads based on the following Settlement Algorithm Donald J. Sipe, PretiFlaherty

  16. THE SETTLEMENT ALGORITHM (cont.) • Total all negative Real Time load deviations for all LSEs who cleared in the Day Ahead Market. • If total negative deviations for all LSEs who cleared in the Day Ahead market are equal to or less than the total Demand Response resources cleared Day Ahead, then: • Each LSE with a negative deviation receives the Day Ahead Price times its negative deviation from the RA and; • Any money remaining in the RA is applied first to offset the cost of any increased generation needed in real time with any surplus distributed pro rata to all Day Ahead load in proportion to the amount of load cleared Day Ahead by LSEs, i.e.; • If total negative Real Time deviations for all LSEs are greater than the total Demand Response resources cleared Day Ahead, then each LSE with a deviation receives a share from the RA based upon: LSE Day Ahead Load Total Day Ahead Load Donald J. Sipe, PretiFlaherty

  17. Scenario 1:All of the Demand Response load reduction occurs in a single LSE and all of the other LSEs have no deviation in Real Time from their Day Ahead load. Result: LSE 1 is paid 10 MW x Day Ahead Price from the RA. There is no Real Time Settlement beyond this. Donald J. Sipe, PretiFlaherty

  18. Scenario 2: None of the Demand Response Load Reduction occurs in loads of one of the four LSEs who bid in Day Ahead. Rather, the reductions occur in an LSE that did not clear Day Ahead. Result: RA is used first to offset Real Time cost of the 10 additional MW of Real Time load above 390 for Day Ahead LSEs. If the Day Ahead Price is greater than the Real Time Price, the difference goes back to Day Ahead LSE’s on a pro-rata basis. If Day Ahead price is less than Real Time, the difference is collected pro-rata from Real Time loads not cleared Day Ahead. Donald J. Sipe, PretiFlaherty

  19. Scenario 3: The Demand Response load reduction occurs only partially in an LSE that cleared in the Day Ahead market Result: LSE 1 receives 5 MW x Day Ahead Price from RA. 5MW x DA price available to offset cost of 5MW Real Time generation. Any surplus returned pro-rata to Day Ahead load. Donald J. Sipe, PretiFlaherty

  20. Scenario 4: No one knows whose load Day Ahead demand response reduced in Real Time, but LSEs loads deviate from Day Ahead in a somewhat random fashion Result: 1. LSE 1 pays for 10 MW at Real Time price. 2. LSE 2 is paid 5 MW at Day Ahead price from the RA. 3. LSE 3 buys 1 MW at Real Time price. 4. LSE 4 stands pat. 5. 5 MW x Day Ahead Price applied against Real Time generation obligation. Donald J. Sipe, PretiFlaherty

  21. Scenario 5: No one knows whose load Day Ahead demand response reduced in Real Time, but all Day Ahead LSE loads go down and the total reduction is greater than the total Demand Resources bid in Day Ahead. Result: All LSEs are credited 2.5 MW at Day Ahead price from RA. Each LSE has 7.5 MW backed by generation to resell or settle at Real Time price. Donald J. Sipe, PretiFlaherty

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